Marriott International Reports Second Quarter 2011 Results (CORRECTED)

Marriott International Reports Second Quarter 2011 Results (CORRECTED)

SECOND QUARTER HIGHLIGHTS

• Diluted earnings per share (EPS) totaled $0.37, a 19 percent increase over prior year results;

• Worldwide comparable systemwide REVPAR rose 7.7 percent using actual dollars.  Average daily rate rose 4.5 percent using actual dollars;

• At the end of the second quarter, the company’s worldwide pipeline of hotels under construction, awaiting conversion or approved for development grew to more than 100,000 rooms, including nearly 44,000 rooms outside North America;

• Marriott repurchased 10.6 million shares of the company’s common stock for $375 million during the quarter.  Year-to-date through June 17, 2011, the company repurchased 18.5 million shares for $675 million.

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BETHESDA, MD – July 13, 2011 - Marriott International, Inc. (NYSE: MAR) today reported second quarter 2011 results, exceeding the company’s prior year results.

SECOND QUARTER 2011 RESULTS
Second quarter 2011 net income totaled $135 million, a 13 percent increase compared to second quarter 2010 net income.  Diluted EPS totaled $0.37, a 19 percent increase from diluted EPS in the year-ago quarter.  On April 20, 2011, the company forecasted second quarter diluted EPS of $0.34 to $0.38.

J.W. Marriott, Jr., Marriott International chairman and chief executive officer, said, “Around the world, we’ve never been more excited about our opportunities.  Now in 71 countries, the Marriott International brand portfolio, already the broadest in the industry, is growing rapidly.  We expect to add over 200 hotels to our system in 2011, leveraging the hospitality and local know-how of our associates with our global size, systems, and guest loyalty programs.  Emerging markets provide especially attractive opportunities.  In the past five years, we have increased our hotel distribution in Brazil, Russia, India and China at a 12 percent compound annual growth rate while tripling our development pipeline in those markets.

“As the world’s economy continues to recover, results at prime destination hotels from Europe to Asia show our appeal with customers.  In the U.S., strengthening lodging demand and limited supply growth are contributing to higher occupancies and room rate growth.  While our market share in the U.S. is currently 10 percent, Marriott International brands accounted for about a quarter of new industry openings and conversions over the last 12 months, reflecting the strength of our portfolio and preference for our brands.

“We continue to generate substantial cash flow and repurchase stock, returning over $700 million to shareholders through share repurchases and dividends year-to-date.  Clearly, we have plenty of reason for optimism.”

For the 2011 second quarter, REVPAR for worldwide comparable systemwide properties increased 6.8 percent (a 7.7 percent increase using actual dollars).

International comparable systemwide REVPAR rose 7.3 percent (an 11.9 percent increase using actual dollars), including a 5.8 percent increase in average daily rate (a 10.4 percent increase using actual dollars) in the second quarter of 2011.  Excluding the Middle East and Japan markets, international comparable systemwide constant dollar REVPAR rose 12.4 percent (a 17.5 percent increase using actual dollars).

In North America, comparable systemwide REVPAR increased 6.6 percent in the second quarter of 2011, including a 3.1 percent increase in average daily rate.  While hotels in Washington, D.C. continued to reflect weaker demand associated with a shorter Congressional calendar and concerns regarding government budgets, most North American markets reflected both strong demand increases and modest supply growth.  Excluding the Washington, D.C. market, North American comparable systemwide REVPAR rose 7.1 percent in the quarter.  REVPAR for comparable systemwide North American full-service and luxury hotels (including Marriott Hotels & Resorts, The Ritz-Carlton and Renaissance Hotels) increased 6.0 percent in the second quarter with a 4.0 percent increase in average daily rate.  REVPAR for comparable systemwide North American limited-service hotels (including Courtyard, Residence Inn, SpringHill Suites, TownePlace Suites and Fairfield Inn & Suites) increased 7.2 percent in the second quarter with a 2.8 percent increase in average daily rate.

Marriott added 32 new properties (4,512 rooms) to its worldwide lodging portfolio in the 2011 second quarter, including the spectacular Ritz-Carlton Hong Kong and two Autograph hotels, The Lodge and Spa at Calloway Gardens in Pine Mountain, Georgia and Kessler Canyon in Colorado.  Ten properties (1,603 rooms) exited the system during the quarter.  At quarter-end, the company’s lodging group encompassed over 3,600 properties and timeshare resorts for a total of nearly 634,000 rooms.

The company’s worldwide pipeline of hotels under construction, awaiting conversion or approved for development increased to 635 properties with over 100,000 rooms at quarter-end.

MARRIOTT REVENUES totaled nearly $3.0 billion in the 2011 second quarter compared to nearly $2.8 billion for the second quarter of 2010.  Base management and franchise fees rose 12 percent to $269 million reflecting higher REVPAR at existing hotels and fees from new hotels.  Second quarter worldwide incentive management fees increased 9 percent to $50 million.  While incentive fees rose in most markets around the world, growth was constrained by lower incentive fees in the Middle East and slightly lower incentive fees in the Greater Washington, D.C. market.  In the second quarter, 25 percent of company-managed hotels earned incentive management fees.

North American comparable company-operated house profit margins increased 100 basis points in the second quarter reflecting higher occupancy and rate increases.  House profit margins for comparable company-operated properties outside North America increased 10 basis points and were challenged by lower REVPAR in the Middle East and Japan.  Excluding the Middle East and Japan markets, international house profit margins in the 2011 second quarter increased approximately 160 basis points.  For full year 2011, the company expects house profit margins to increase 100 to 125 basis points in North America and roughly 150 basis points outside North America excluding the Middle East and Japan markets.

Owned, leased, corporate housing and other revenue, net of direct expenses, declined $2 million in the 2011 second quarter, to $29 million, largely reflecting $4 million of lower termination fees, net of related costs.

In the second quarter, Timeshare segment contract sales declined $4 million to $163 million from adjusted segment contract sales of $167 million (excluding a $6 million allowance for fractional and residential contract cancellations) in the year-ago quarter.  Marriott’s timeshare business remained focused in the second quarter on increasing the number of existing customers enrolled in its new points-based program.  The program allows customers to purchase timeshare in smaller increments than the traditional one-week product and allows greater flexibility of use.  Since the program launched in June 2010, nearly 75,000 existing owners have enrolled more than 140,000 weeks in the points program, continuing to exceed the company’s expectations.  Contract sales to existing owners represented more than 61 percent of sales in the quarter compared to 48 percent in the year-ago quarter.  While sales to existing customers were strong, with fewer sales to new customers year-over-year and a lower average contract price, second quarter timeshare contract sales were flat compared to the year-ago quarter.  Fractional and residential contract sales declined by $4 million due to continued weak demand for luxury products.

In the second quarter, Timeshare sales and services revenue, net of expenses, declined $7 million to $43 million largely due to lower interest income on a smaller mortgage portfolio and, to a lesser extent, higher product costs.  Compared to expectations, second quarter timeshare sales and services revenue, net of expenses, reflected greater than expected deferred revenue.

Timeshare segment results include Timeshare sales and services revenue, net of direct expenses, as well as base management fees, gains and other income, equity in earnings (losses), interest expense and general, administrative and other expenses associated with the timeshare business.  Timeshare segment results for the 2011 second quarter totaled $29 million and included $12 million of interest expense related to securitized Timeshare notes.  In the prior year quarter, Timeshare segment results totaled $32 million and included $14 million of interest expense related to securitized Timeshare notes.

GENERAL, ADMINISTRATIVE and OTHER expenses for the 2011 second quarter increased 12 percent to $159 million, compared to expenses of $142 million in the year-ago quarter.  The increase in expenses reflected several non-routine items including $7 million of higher legal expenses, a $5 million payment related to the performance of one hotel, $3 million of transaction-related expenses associated with the spin-off of the timeshare business, as well as higher costs associated with growth in international markets and routine compensation increases.  The increase in expenses was partially offset by a $5 million reversal of a loan loss provision.

INTEREST EXPENSE decreased $7 million to $37 million in the second quarter, primarily due to higher capitalized interest and lower total debt balances.

EQUITY IN EARNINGS (LOSSES) improved $4 million in the quarter from a $4 million loss in the year-ago quarter.  The $4 million year-over-year improvement included $2 million of lower loss at one Timeshare joint venture and $2 million of increased earnings from stronger property-level performance at two lodging joint ventures.

Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA)
Marriott International EBITDA totaled $287 million in the 2011 second quarter, a 3 percent increase over EBITDA of $278 million in the year-ago quarter.  EBITDA for the Timeshare segment declined 11 percent to $50 million in the 2011 second quarter largely due to lower interest income.  See pages A-10 and A-11 for the EBITDA calculations.

BALANCE SHEET
At the end of the second quarter 2011, total debt was $2,922 million, including $156 million of outstanding commercial paper, and cash balances totaled $117 million, compared to $2,829 million in debt and $505 million of cash at year-end 2010.

COMMON STOCK
Weighted average fully diluted shares outstanding used to calculate diluted EPS totaled 369.4 million in the 2011 second quarter compared to 377.4 million in the year-ago quarter.

The company repurchased 10.6 million shares of common stock in the second quarter of 2011 at a cost of $375 million.  Year-to-date through June 17, 2011, Marriott repurchased 18.5 million shares of its stock for $675 million.  The remaining share repurchase authorization, as of June 17, 2011, totaled 30.4 million shares.

THIRD QUARTER 2011 OUTLOOK
For the third quarter, the company assumes North American comparable systemwide REVPAR will increase 5 to 7 percent reflecting strong demand in most markets, but continued weak demand in Washington, D.C.

Outside North America, the company assumes third quarter 2011 comparable systemwide REVPAR on a constant dollar basis will increase 6 to 8 percent, excluding the Middle East and Japan markets.  Including the Middle East and Japan markets, comparable systemwide REVPAR outside North America could be approximately 200 basis points lower.

On a worldwide basis, the company expects third quarter 2011 comparable systemwide REVPAR on a constant dollar basis will increase 6 to 8 percent excluding the Middle East and Japan markets.  Including the Middle East and Japan markets, worldwide comparable systemwide REVPAR could be approximately 100 basis points lower.

The company assumes third quarter 2011 Timeshare contract sales will total $165 million to $175 million and Timeshare sales and services revenue, net of direct expenses, will total approximately $40 million to $45 million.  With these assumptions, Timeshare segment results for the third quarter, including interest expense associated with securitized notes, are expected to total $25 million to $30 million.

For the 2011 third quarter, the company expects general and administrative costs to total $165 million to $170 million reflecting higher year-over-year workout costs, as well as higher costs in international growth markets.
 
2011 OUTLOOK
The company’s 2011 guidance assumes that the planned spin-off of the Timeshare segment does not occur in the current year and does not include pro forma adjustments or estimates of further transaction expenses.  Such transaction costs could be material in the second half of 2011.

The company assumes full year 2011 North American comparable systemwide REVPAR will increase 6 to 8 percent.  Outside North America, the company assumes comparable systemwide REVPAR on a constant dollar basis will increase 7 to 9 percent, excluding the Middle East and Japan markets.  Including the Middle East and Japan markets, comparable systemwide REVPAR outside North America could be approximately 200 basis points lower for full year 2011.

On a worldwide basis, the company expects full year 2011 comparable systemwide REVPAR on a constant dollar basis will increase 6 to 8 percent, excluding the Middle East and Japan markets. Including the Middle East and Japan markets, worldwide comparable systemwide REVPAR could be 50 to 75 basis points lower.

The company expects to add approximately 35,000 rooms in 2011 as most hotels expected to open are already under construction or undergoing conversion from other brands.  Given these assumptions, full year 2011 fee revenue could total $1,305 million to $1,325 million, an increase of 10 to 12 percent.

Owned, leased, corporate housing and other revenue, net of direct expense, could total $120 million to $125 million.

The company expects 2011 Timeshare contract sales to be slightly below 2010 adjusted levels and timeshare sales and services revenue, net of direct expenses, to total $205 million to $215 million, $10 million lower than prior guidance largely due to lower reportability and higher rental expenses.  Timeshare segment results are expected to total $140 to $150 million in 2011.

The company expects its 2011 general and administrative costs to total $710 million to $720 million reflecting several non-routine items including higher workout costs and year-to-date transaction-related expenses associated with the planned spin-off of the timeshare business, as well as higher costs associated with growth in international markets.  Compared to full year guidance issued in April 2011, the company expects a $5 million increase to general and administrative costs largely due to year-to-date expenses associated with the planned spin-off of the timeshare business.

All in all, the company expects full year 2011 diluted EPS of $1.35 to $1.43.

The company expects investment spending in 2011 will total approximately $500 million to $700 million, including $50 million to $100 million for maintenance capital spending.  Investment spending will also include other capital expenditures (including property acquisitions), new mezzanine financing and mortgage notes, contract acquisition costs, and equity and other investments.

Based upon the assumptions above, the company expects full year 2011 EBITDA to total $1,135 million to $1,180 million, a 9 to 13 percent increase over the prior year’s adjusted EBITDA.  Adjusted EBITDA for full year 2010 totaled $1,044 million and is shown on page A-12.

Marriott International, Inc. (NYSE:MAR) will conduct its quarterly earnings review for the investment community and news media on Thursday, July 14, 2011 at 10 a.m. Eastern Time (ET).  The conference call will be webcast simultaneously via Marriott’s investor relations website at http://www.marriott.com/investor, click the “Recent and Upcoming Events” tab and click on the quarterly conference call link.  A replay will be available at that same website until July 14, 2012.

The telephone dial-in number for the conference call is 706-679-3455 and the conference ID is 73075252.  A telephone replay of the conference call will be available from 1 p.m. ET, Thursday, July 14, 2011 until 8 p.m. ET, Thursday, July 21, 2011.  To access the replay, call 706-645-9291.  The reservation number for the recording is 73075252.

Note on forward-looking statements:  This press release and accompanying schedules contain “forward-looking statements” within the meaning of federal securities laws, including statements concerning the timing and terms of the planned spin-off of our timeshare operations and development business; REVPAR, profit margin and earnings trends, estimates and assumptions; the number of lodging properties we expect to add in the future; our expectations about investment spending and share repurchases; and similar statements concerning anticipated future events and expectations that are not historical facts.  We caution you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including those we identify below and other risk factors that we identify in our most recent quarterly report on Form 10-Q.  Risks that could affect forward-looking statements in this press release include changes in market conditions; the continuation and pace of the economic recovery; supply and demand changes for hotel rooms, corporate housing and our timeshare products; competitive conditions in the lodging industry; relationships with clients and property owners; the availability of capital to finance hotel growth and refurbishment; and unanticipated developments that prevent, delay, alter the terms of, or otherwise negatively affect the planned spin-off of our Timeshare segment.  Any of these factors could cause actual results to differ materially from the expectations we express or imply in this press release.  We make these forward-looking statements as of July 13, 2011.  We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.


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